Westpac Appeals over Tax Ruling

Submitted by Jim Thesiger on 4 November, 2009 - 06:53

One of the largest banks of Australia, Westpac Banking Corporation (WBC) has appealed last month’s High Court ruling in New Zealand regarding the structured financial transactions which might cost it as much as $NZ918 million plus penalties. Westpac stated that it had reviewed Judge Rhys Harrison's ruling termed the transaction as an attempt to avoid paying tax. George Frazis, the chief executive of Westpac NZ said that the bank has scopes to go for the appeal against that ruling. Westpac is expecting the appeal to take place in the last quarter of the next year. The second biggest bank of Australia expected the 2001 ruling of the NZ Inland Revenue commissioner would be sufficient to convince the High Court that the structured finance transactions which were executed in 1998 and 2002 satisfied the tax laws. The commissioner got the ruling in their favour for four representative transactions.

The overall cost of Westpac Banking Corporation is $NZ918 million which excludes possible penalties and includes core tax payment and interest worth of $NZ586 million and $NZ332 million respectively as at 30th of September. The bank declared in October 8th that it could consider increasing unspecified provisions to the full amount owed (which would cost it 25 basis points) to its tier-one ratio of around 8.37 percent. It is to be mentioned that the high court decision backed a ruling which was made by the same court on July regarding a similar structured finance transaction which was undertaken by National Australia Bank (NAB).

The commissioner alleged that the controversial Westpac transaction did not involve any commercial purpose but to utilize irregularity regarding tax payments, and if not for the tax benefits they would lead Westpac to loss. However, in last month Mr. Frazis claimed that the transactions executed by the bank were commercially justified.